Getlink SE (GET) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Getlink Group Q3 2020 Traffic and Revenue Conference Call. I now hand over to Mr. Jacques Gounon, Chairman. Sir, please go ahead.

Thank you, Marie. Good morning, ladies and gentlemen. It's a real pleasure to have this call with you. I am with Yann Leriche, CEO; Géraldine Périchon, CFO; and new Risk, Mike Schuller and Jean-Baptiste Roussille; plus, of course, Anne-Laure Descleves and Romain Dufour for the presentation and the relationship with both shareholders and the price. In fact, you have the dream team. I know it's not usual to organize a call for Q3 results. But I think it's an opportunity for you, lady and gentlemen, to have a direct contact with the new executive team and perhaps to have some comments about this, what I can say, pretty good Q3, better than expected as some comments have been already made. You have seen that we have a very strong cash position, which is, I would say, a quite good benchmark. And we have, of course, to explain what would be our vision, our views regarding second semester because we are really in the second wave of the sanitary crisis negotiations, and Brexit are, as expected, also ongoing even if we are not really -- we have no fear -- no specific fear for the outcome. And of course, and this has been already indicated due to the sanitary prices, of course. We -- even if we are fully confident in our robust business model, we are no longer able, of course, to confirm the initial guideline for end of this year. But I'm sure that the dream team I mentioned will answer to your questions. So immediately, I give the floor to Yann Leriche. Yann, the floor is yours.

Thank you, Jacques. I will start this call with a short introduction, then Géraldine will present you the Q3 traffic and revenue, and I will finish by giving you a few insights into our Q4 action plan. I'm on Page 4 of the deck with our key messages. So first, as you have seen, we had a robust truck traffic in Q3. Volumes were down only 3% over the period, and our market share was at 39.3%. This confirms our strong competitiveness. Car traffic was down 30% in Q3. Revenue was, however, less impacted, thanks to a strong yield. What was remarkable during the summer is the speed at which customers came back after the end of the spring lockdown. The last week of June and the 5 weeks of July were our best ones ever in terms of booking. This quick catch-up in terms of bookings led to car traffic early August, which was only 5% down compared to '19. Our Q3 market share was also remarkable with an all-time high at 72.4%. Then Eurostar, traffic was strongly impacted by the pandemic. As part of their rebound strategy, they have -- they are preparing the opening of the Amsterdam-London route, which is confirmed for the end of next month. With this Le Shuttle on one side and railway traffic on the other side, we finished the quarter with a strong cash position, as Jacques just mentioned, at EUR 596 million, which is EUR 85 million above what we had in our accounts end of June. This amount is also to be compared with our H2 debt service of EUR 120 million. As mentioned earlier on, we will finish this presentation by sharing with you our Q4 action plan. But before that, Géraldine, for the Q3 traffic and revenue.

Thank you very much, and good morning to you all. I'm very happy to be here with you and to have the opportunity to speak about Getlink's Q3 performance. Let's start with Slide 6 with the overall revenues. They are at EUR 305 million in Q3, down by 17% compared to last year, and year-to-date is down 25% at EUR 622 million. This showed an improvement to compare to what we saw in H1. As a reminder, we were down by 32% in H1 2020 and 53% in Q2 compared to last year. We'll get to that in the next pages, but you can see that we had a strong Q3 given the context, of course, for Le Shuttle and Europorte, whereas the Railway segment is still suffering. On Slide 7, you can see that we had a revenue performance roughly in line with 2019 at Le Shuttle with EUR 181 million of revenues and that we had a decrease in the Railway segment of 57% compared to last year. Let's get into more details about Le Shuttle performance on the following slides. On Page 8, as explained by Yann, you can see that we had robust traffic in Q3 for trucks, which were down by only 3%. Regarding cars, Slide 9, unsurprisingly, the volumes decreased more than for trucks at minus 30%. I'll spend a few minutes on this as it is a result of a very contrasting period. Yann mentioned a few minutes ago that we saw a fast return in the volumes as soon as the travel restrictions were lifted with record-breaking bookings during the first week of July and volumes down by just 5% versus '19, just before the quarantine was reinstated in mid-August. Volumes were also down by only 46% compared to 2019 in August. I'm saying only, of course, because as compared to the rest of the travel industry, this is a very impressive and resilient traffic number. Several factors explain the number: the fact that we provide an end-to-end, contactless and safe way to travel; the fact that we offer the fastest [ during the ] time; and a reliable, frequent time table; as well, of course, of the quality of our service. The last element explains Le Shuttle revenue performance, yield. And that has been quite strong in Q3, mostly explained by the increased proportion of reimbursable tickets of Flexiplus customers and last-minute bookings. This is illustrated in Slide 10, where you can see that our total yield, trucks and cars included, over the last 9 months is up by nearly 14%. That's to be compared to the average annual rate over the last 5 years of 3%. The picture is different for railways, as you can see on Page 11. Eurostar passengers were down by 89% in Q3, the rail freight missions by 23% and the total revenues down by 57%. The significant difference in volumes and revenue effects that you can see is explained by the fixed portions that the railway customers pay to us. Eurostar has better recovery perspective than airlines, thanks to green credentials, the relative easier and reassuring safety procedures and city center to city center journeys. As mentioned by Yann, the launch of the direct London-Amsterdam service and the acceleration of the Green Speed project also provide some good perspectives for the business. Finally, Page 12, you can see that Europorte made a solid performance in Q3 with EUR 32 million of revenue, which is up by 3% compared to last year. This excellent performance was made possible, thanks to the agility of the organization that allowed us to more than compensate the decrease of missions that were ordered by the current portfolio of contracts with additional last-minute spot missions. I will now leave the floor to Yann for the Q4 action plan.

Thanks, Géraldine. Q4 action plan. So here, we have 3 main priorities, which are: one, performance; two, agility; and three, discipline in the execution. Performance first. It's both about cost and revenue. So please go on Page 14. Regarding our cost, we launched a program called Shield, aiming at reducing OpEx, CapEx and employee costs. So first, OpEx, we are reducing all our external costs, consulting, outsourcing, SG&A and others. We are also accelerating all our productivity programs. CapEx. So here, we are reviewing one by one all our planned investments with the objective of optimizing their amounts and schedules. Of course, all safety, regulatory and Brexit projects are maintained. Last, employees cost. Here, we have implemented furlough in the U.K. and activité partielle in France to adapt our workforce to the level of traffic we operate. We do not plan today to make people redundance as we do want to be able to be fully -- to fully benefit from the end of the travel restrictions when they come. As mentioned earlier on, we have learned this summer that the traffic will bounce back very quickly when the restrictions are over. Our cost reduction plan, Shield, is managed by our heads of finance, HR, operations and sales. They have weekly meetings to review the actions dedicated to reach our savings targets. We will not communicate about these targets as they depend on the level of traffic we'll have over the next month. On the revenue side, we are developing a new pricing engine, which will go live early next year. The goal of this engine is to segment our customer base more finely than today, especially as to their vehicle size. We are also developing value-add services for our freight customers. Now let's go to Page 15, agility. To bring costs down and be able to adapt quickly to the demand, we want to have a workforce as flexible as possible. To do this, we have developed a program called One Team One Mission. As its name indicates, we are one team with one mission, which is to best serve our clients at the best cost. We are training people to jobs that are not the usual ones to get the flexibility that we need. And this will help us best manage the year-end truck traffic increase that we expect will be a pre-Brexit stockpiling. Géraldine, about financial structure.

The group has always pursued an active management of its financial structure, and obviously, now is not the time to change those good habits. So in an abundance of precaution, we have signed a waiver on the Eurotunnel term loan financial DSCR covenants. This covers the next 3 testing periods, December 2020, June and December 2021. The last 2 periods are options, which are available if we require them. We are also closely monitoring the financial market conditions to be in a position to seize refinancing opportunities, for example, of our green bonds. This is to further improve our strong liquidity position, but only if the market is favorable. There is no necessity. We are just being opportunistic.

Okay. And finally, on Page 16, the execution. We have 2 projects. We give a specific attention to Brexit and ElecLink. So Brexit first. The infrastructures and facilities are ready. We are currently supporting our client to get ready for January 1. We, for example, organize weekly webinars with our freight clients. We are also testing all our new IT systems. The main one is our Eurotunnel Border Pass, which will enable to freight customers to digitize all their border documents and send them to us in advance in order to then [ pass ] the frontier seamlessly. And finally, ElecLink. As you know, we are now working in a very constructive manner with the IGC and CTSA. We have weekly meetings with them. And we got from them a first consent, the first one we were expecting, on October 7. It was the authorization to take the power station. And we now expect the second one, which is about holding the cable in the tunnel, in December. Thank you for your attention. Now we'll go to the Q&A session.

Thank you, Yann and Géraldine. I think that, of course, we made such a quick presentation because we want to give room for a Q&A session. But you have seen through this presentation that, first of all, and I would like to add that we have the full support of our employees and unions, which is absolutely key. We are very flexible. We are motivated. We are looking carefully to the future, and we are taking all the actions which are requested in order to deal with any situation. So once again, as we did in the past, I think we are still the leader of the [indiscernible], and we consider that we are in a very well positioning regarding all the competition. But now please ask your question, and so I give the floor to Marie in order to explain how we can work on that.

[Operator Instructions] We have the first question from Nabil Ahmed from Barclays.

I actually had 3 series of questions, if I may. The first one is maybe on the technicals of the covenant waiver. I think in the release, you mentioned that the waiver is subject to holding specific cash levels at the original level. Could you please elaborate a bit on that? Second question, on the Shield plan, I'm aware that the situation is what it is and there's a lot of uncertainty, but if you could help us understand what sort of cost and CapEx benefits you expect from the initiatives you will be taking and also if you can guide us on what sort of OpEx and CapEx trajectory you would expect for the remainder of the year, that would be useful. And finally, one question on cash. I think you're mentioning an improved cash situation at the end of September. Have you drawn on additional credit lines which is related to the cash flow generation of the third quarter? Any comments you could make on that would be useful.

Thank you, Nabil. This is Géraldine. I will take your first question. Regarding the waiver, we cannot disclose the exact terms as they are confidential, but I can tell you that the agreed conditions are essentially a fee that is minimal compared to what we currently see in the market. And the cash level maintenance, that is well in line with our usual policy actually regarding the amount of cash we leave in the Eurotunnel subgroup.

Okay. Regarding the Shield plan, as mentioned earlier on, we're not going to disclose a precise amount. As told, we target OpEx, CapEx and employee costs, so we are reducing in all fields our costs. But we want to keep some flexibility in our program just because we know that the year-end can be good, especially in terms of freight traffic, and we want to be able to take all opportunities as they come and not just focus on reducing costs. Our rule is to maximize value first.

Yes, Yann, perhaps we can remind that we made EUR 27 million savings in the Q2, including, of course, EUR 9 million coming from the state aid related to activité partielle and furlough. So it means that in 3 months, we have been able to generate significant savings. And I'm sure that the team under Yann's management, of course, will do something very strong. Yes, Géraldine?

Yes. And on the third question on cash position, Nabil, this is purely cash flow generation. We didn't draw on any line to generate that amount.

Can I just have a follow-up on CapEx? I think, previously, you were guiding on roughly EUR 70 million for 2020. Is that still the order of magnitude we should expect for this year?

We'll not give any number on the CapEx level.

Next question comes from Cristian Nedelcu from UBS. Next question comes from Virginie Rousseau from ODDO.

Just a question on ElecLink, please. Could you explain us how comfortable you are to get the authorization to pull the cable in December? And then what are the following steps? And could you remind us your targets in terms of sales, EBITDA and timing for that?

Okay. So on ElecLink, as mentioned, we have now a strong working relationship with them. And there was a meeting on October 8, so very recently. And during that meeting, the head of the French delegation of the IGC and the head of the U.K. delegation of the IGC both told us that the decision would be taken on December 10. So we have a working program in between, but they were very confident that with everything that we give them, you know that they now consider that all the file, all the documents that we give them are comprehensive. They are not asking for new question. They consider that we gave everything that we had to. So this is the first step. So now they are working, asking -- I mean discussing with us, but there is nothing new. So we are very confident that they will take the decision on that day. Of course, it's their decision, it's not ours, so I cannot tell you that it is 100%. But I can tell you that we are very confident given the current context of working. So once we have this second authorization after the first one that we just got about the power station, we have 18 months of work of rolling the cable and then the final testings before the cable go live. We haven't changed our revenue forecast compared to the one that were disclosed, I think, for the first time in 2018. We are still on the same numbers. You know that we test those numbers on a regular basis. And for the moment, the conditions are still the same, so we still target the same EBITDA target as the one that we initially communicated.

Next question comes from Cristian Nedelcu from UBS.

Two, if I may. The first one on the car shuttle pricing. I guess what are the lessons learned from what you've seen over these last few months in terms of the pricing strategy in the car shuttle on the mid- and long term? And do you reckon that some of these price increases can be sustained for the next few years even after things normalize? And the second one, I guess just looking a bit at your headcount. I think in 2006, you had somewhere around 2,300 employees. In 2019, you have around 3,500. So your headcount increased by 45%, while in the same time, the shuttle volumes were up 25% to 30% during that time frame. So I guess what explains that disproportionate increase in headcount? I'm just trying to better understand the opportunity of cost optimization here going forward.

Okay. So the first question was about the car shuttle pricing. So you're seeing that our yield increased over the past month. And here, actually, there are 2 effects that are combining. The first one is people are booking later their trips compared to last year, one. And second, the mix of product that we sell is not the one that we sold in 2019. People go to more expensive products. For example, our flexible product reached an 11% share of our sales, which was a record compared to '19. So those 2 effects are very important. What we have learned over the summer is that also people are willing to travel back if they can. Just after the end of the lockdown, we had record bookings for 5 weeks in a row, the best booking weeks ever, which is very interesting and a lesson learned for us, which is that clients are willing to come back. So based on that, we are very confident about the future, but we also acknowledge that we must already understand what are the new needs of our customers. With the COVID, with a few other factors, their needs might change in the future. So that's why we are working hard on trying to better and better understand their needs and to refine our pricing engine for the future. This is what I mentioned before. We have a new system in place early next year. And you know that to capture all the value of our customers, we absolutely need to segment them as finely as possible and to understand their willingness to pay. So this is what we are working on. And yes, of course, this will help our yield going forward.

If I may add some comment, Yann. I would just mention that everyone knows the Flexiplus scheme and the investment we made, which are very profitable because in August, perhaps thanks to the lockdown which has been imposed by the government, FlexiPlus represented [Technical Difficulty]

Jacques, we are losing you. Hello?

Jacques?

Yes. Jacques is online, but I think there is a problem with his microphone.

Okay. So while Jacques is reconnecting, I will say a few words about the second question. The increase that was mentioned in staff is linked to the Europorte business that joined the group in 2010. If we look at the period just for Eurotunnel from 2006 to 2019, the increase is plus 17%, which is lower than the increase of traffic. Jacques?

Jacques is not online for the moment. Maybe we'll be reconnecting.

Let's pick another question, Marie.

For the moment, we have no more question. [Operator Instructions] We have a new question from Nabil Ahmed from Barclays.

I'm taking the opportunity. Can we discuss a little bit the truck shuttle as well? I think October, November is usually the time where you're starting to have conversations with your customers of next year's pricing. This is obviously a very unique environment in many ways. But how do you approach pricing in the current situation? And also, if you could say a word about the market share loss you experienced in the second quarter, whether that has changed in the third quarter, and how customers are responding to the various cost-cutting measures that you might implement there.

Okay. So your first point was about the pricing for freight business for next year. You're right, discussion of timing with our main customers. We don't change our global strategy regarding pricing, which is a reasonable increase year-over-year. And so this is what we are applying this year. And with the first contact that we had with our customers, they understand. I mean there is no specific issue to be to be mentioned here. Of course, the discussion are a lot about what will happen in January 1. They asked us a lot of questions. And they have identified that on the market, we are the one providing the -- I mean the best prepared and providing the best answers. We get even question from haulers that are not our clients today, which is very interesting because that shows that we are the market leaders in that field. I'm not sure I fully understood your second question. Cost-cutting is different from our relationship with our clients here. We are just optimizing the way we operate internally. So this will have no impact, of course, on the service that we deliver to our clients.

Question on market share.

Oh, yes, sorry, there was also the question of the market share of Q2, yes, which dropped a bit. So what happened in Q2 is that when the COVID started to spread, people, of course, were wondering how all of this would work. And some drivers were not -- I mean not so confident about getting in a train with us or in a bus when you go from your truck to your car. All of this has been addressed very quickly. So we have invested a lot in getting prepared for the COVID. So we have overhauled our buses and trains, so it's not an issue anymore. You see that our market share has rise again significantly over the summer, and we even had a record market share in September organic trucks.

There are perhaps 2 other comments. First of all, in Q2, ferry operators have accepted that drivers remain in their trucks, which is against all the maritime rules. And we raised the point at the Transport Minister, and of course, this has changed, but the impact has been quite important for a while. At the same time also, the ferry operators were offering a free lunch all over the day for guys, so it was very attractive. So it is a kind of business that rates move from ferry operators to attract haulers and drivers. And obviously, it has not been long enough because we recovered, as it has been mentioned, our market share. I would like to add that, of course, we will have to look at in the future that as we already experienced, we could be -- we could benefit of a kind of stockpiling before end of the year, which is different, of course, from the year negotiations you are mentioning. But once again, such flexibility and the fact that we are ready to meet any requirements from our customers is a key strength in order to recover traffic and market share to maintain at the best level. So once again, flexibility is absolutely key in our business, and we can react very rapidly when we have decisions to make.